Gaucho Services starts life with all-equity financing and a cost of equity of 13%. Suppose it refinances to the following market value capital structure: Debt (D) Equity (E) 59% a. Return on equity b. After-tax WACC at p= 8.68 a. Use MM's proposition 2 to calculate the new cost of equity. Gaucho pays taxes at a marginal rate of 30%. b. Calculate Gaucho's after-tax weighted-average cost of capital Note: Do not round intermediate calculations. Enter your answers as a percent rounded to 2 decimal places.

Gaucho Services starts life with all-equity financing and a cost of equity of 13%. Suppose it refinances to the following market value capital structure: Debt (D) Equity (E) 59% a. Return on equity b. After-tax WACC at p= 8.68 a. Use MM's proposition 2 to calculate the new cost of equity. Gaucho pays taxes at a marginal rate of 30%. b. Calculate Gaucho's after-tax weighted-average cost of capital Note: Do not round intermediate calculations. Enter your answers as a percent rounded to 2 decimal places.

Essentials Of Investments

11th Edition

ISBN:9781260013924

Author:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.

Publisher:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.

Chapter1: Investments: Background And Issues

Section: Chapter Questions

Problem 1PS

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Wilde Software Development has a 10% unlevered cost of equity. Wilde forecasts the following interest expenses, which are expected to grow at a constant 4% rate after Year 3. Wilde's tax rate is 25%. Interest expenses Year 1=$70 , Year 2= $85, Year 3= $125. What is the horizon value of the interest tax shield? PLEASE Do not round intermediate calculations And please round the answer to the nearest cent. Please show me the steps I don't know what I'm doing wrong!
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Evans Technology has the following capital structure. Debt Common equity 35% 65 The aftertax cost of debt is 7.50 percent, and the cost of common equity (in the form of retained earnings) is 14.50 percent. a. What is the firm's weighted average cost of capital? Note: Do not round intermediate calculations. Input your answers as a percent rounded to 2 decimal places. Debt Common equity Weighted average cost of capital Weighted Cost % % An outside consultant has suggested that because debt is cheaper than equity, the firm should switch to a capital structure that is 50 percent debt and 50 percent equity. Under this new and more debt-oriented arrangement, the aftertax cost of debt is 8.50 percent, and the cost of common equity (in the form of retained earnings) is 16.50 percent. Debt Common equity Weighted average cost of capital b. Recalculate the firm's weighted average cost of capital. Note: Do not round intermediate calculations. Input your answers as a percent rounded to 2 decimal…
Pls help correctly, I only need c part and correct with approach and explanation.
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